Discuss, in less than 1000 words, the role of back-testing of VaR models in portfolio management. [30 marks] A useful reference for back-testing is Lucas, A., (2001), “Evaluating the Basle Guidelines for Back-testing Banks’ Internal Risk Management Models,” Journal of Money, Credit and Banking, Vol. 33, No. 3. In particular, one should read p826-831 and the concluding remarks.
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